Reborn, old U.S. airlines look to soar again

But difficulties remain. Northwest and other airlines are still burdened with debt, Cordle notes, and worker morale is low. In bankruptcy, Northwest faced severe criticism from workers who were forced to make sacrifices. In 2005, the airline replaced about 4,400 striking mechanics with non-union labor and outside vendors. And the airline battled its flight attendants union, ultimately winning court approval to void its labor contract and impose concessions on the employees.

Cordle also notes that the carriers’ domestic losses are being offset by gains in overseas routes to South America, across the Atlantic and east to Asia. But he adds that U.S. airlines are likely to face stiff competition in the years ahead from foreign-based airlines like Ireland’s Ryanair and Britain’s Virgin Atlantic who are expected to take advantage of a recently sealed “open skies” pact between the United States and the European Union, which promises to give more carriers access to profitable Atlantic routes.

“The legacy airlines look like they are in really good shape because of their international operations,” said Cordle. “They can use that to growth to offset weakness in the U.S. market, but they are still in trouble. For them, the U.S. market accounts for about 70 percent of their operations, so as long as that sector is weak, it’s not good for them.”

Aviation consultant Michael Boyd, president of the Boyd Group in Evergreen, Colo., sees potential gains in legacy airlines’ “hub and spoke” distribution model, which he says will allow more established U.S. airlines like Northwest to take advantage of future growth opportunities inside the United States.

Carriers like American, Continental and Northwest, which have a mixture of bigger and smaller planes, are best suited to profit from the type of industry growth in travel to U.S. regions in the South and Southwest. JetBlue and Southwest, on the other hand, are about to introduce a large number of new jets that are mainly medium-ranged and not well-suited to carrying international passengers to new growth regions in U.S. states like Mississippi, Georgia, Indiana and Alabama, Boyd said.

“There’s only a certain type of market you can access with a Boeing 737,” said Boyd. “You can’t go to Shanghai or Shreveport in it, but you can go fight with other carriers for the popular Las Vegas or Florida market. That’s vacation stuff, and those markets are getting saturated so it’s hard to stimulate new traffic in them.”

“The wave of the future is Northwest; it’s not Southwest,” Boyd continued. “Now that could change because Southwest know it’s in trouble, but a company like Northwest has its costs down, the right revenue streams and structure. In the future the real growth is going to come from secondary markets like Montgomery, Ala.”

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